June 13, 2023

Benchmark diesel price drops again as futures prices hold steady


With diesel futures markets having largely moved in circles the past three weeks, the pace of declines at the retail level is slowing.

The benchmark price used for most fuel surcharges declined Monday for the 18th time in 19 weeks. But the decline of 0.3 cents a gallon to $3.794 in the Department of Energy/Energy Information Administration weekly average retail diesel price was the smallest in that stretch that has sliced 82.8 cents a gallon off the price since Jan. 30.

Ultra low sulfur diesel (ULSD) on the CME commodity exchange, before a decline of 5.19 cents a gallon Monday, has moved up and down but closed each of the past three weeks at pretty much where it ended the prior week. Settlement prices the past four Fridays have been $2.3622, $2.3693, $2.3569 and $2.3610. There was up-and-down movement during the week, but by the Friday settlement, the price was right back where it had begun trading on Monday.

Oil prices overall were lower Monday, and ULSD’s 5.19-cents-per-gallon decline brought it to $2.3091.

The weakness in overall oil prices led Goldman Sachs to reduce its closely watched price forecast for the end of the year. It now sees the price of Brent standing at $86 a barrel at the end of 2023. Previously, the forecast was $95.

Brent settled Monday on CME at $71.84 a barrel.

Part of what is driving the change at Goldman is its belief that supplies are outpacing earlier predictions.

Goldman forecast that supply coming from nations not in what it called the “OPEC core” — like Saudi Arabia or Kuwait — is going to lead to an increase in global supply of about 800,000 b/d beyond what it had earlier predicted. “Previously constrained productive capacity has been unlocked,” it said in the report.

The U.S. diesel market did get some bearish news last week that should be good news to consumers: Inventories took a significant upward turn.

ULSD inventories had been less than 100 million barrels for six consecutive weeks. That benchmark number has only been breached to the downside a few times in its history, and two of the times were periods last year when average retail diesel prices were well above $5 a gallon.

But the weekly EIA report showed ULSD inventories at 102.1 million barrels, an increase of 5.2 million barrels and a sharp jump for one week. One reason: After producing “max gasoline,” a term for a refinery squeezing as much gasoline out of its system as possible, there’s been a shift back to making more diesel. Output in the week ended June 2 of more than 5 million b/d of diesel was the first time in 2023 that ULSD production had topped that number.

More articles by John Kingston

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